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Friday, October 10, 2008

Ruh Roh, Reorge! The news on Wall Street is grim--just one year after closing at an all-time high of 14,164.53, the Dow dropped another 679 points yesterday to close at its lowest level in 5 years. (In case you're keeping track it's down nearly 40%.) The losses have driven the now not-quite-so-fabulously wealthy to therapy as they seek help for "sudden loss syndrome," a condition we're pretty sure isn't in the latest DSM manual but may well be by the time the fifth edition is released in 2012.

While the biopharma world has been relatively insulated from the turmoil on Wall Street--compared to other industries, most Big Pharma and Big Biotech aren't highly leveraged and have low debt to capital ratios--it certainly isn't immune. (We'll have more to say about this in the upcoming IN VIVO.)

Word is that a certain Big Pharma that went shopping this week had a difficult time lining up its debt financing. It got it--but at a higher rate than it would have a few months back.

It will be interesting to see how Genentech fares given the protracted crisis. Roche still hasn't officially responded to the company's last "no", and some analysts speculate that the Swiss pharma won't be able to finance the deal on favorable terms. Even so, the $89-a-share offer price looks a whole lot better this week than it did just seven days ago. As of Thursday evening, Genentech's shares slid below $80 thanks to general weakness in the market and news that Avastin in combination with partner OSI's Tarceva didn't improve outcomes in lung cancer patients.

Certainly smaller biotechs and specialty pharmas are having troubles. The Danish biotech Genmab announced Wednesday that it's stopping research on zanolimumab and cutting 101 jobs. AtheroGenics, meanwhile, revealed it was filing for Chapter 11, while Mylan's CEO spent much of the week trying to soothe its nervous nellies (also known as investors) after the company's stock price plunged on concerns that the company was too highly leveraged.

Are you inured to the negative news or barely hanging on? Either way, it's time for your weekly ray of sunshine...

Eli Lilly/ImClone: Oh Carl, behave. We admit it--sometimes activist shareholders do add value. ImClone certainly came out smelling like a rose this week. Lilly was, indeed, the mysterious (though not dark and handsome) suitor courting the oncology-focused biotech. In a bid that defies logic, the pharma agreed to cough up $70-a-share or $6.5 billion for the bragging rights to ImClone's interesting but risky early stage pipeline. As we reported in the Pink Sheet Daily, the deal calculus likely wasn't based on the value of ImClone's lead product, the EGFR antagonist Erbitux. After all BMS owns 73% of the rights to the product in the US, while Merck KGaA owns 90% of Erbitux in Europe. But as we all know, it's now de rigeur to be an oncology player if you're a Big Pharma--witness the recent moves of GlaxoSmithKline and Pfizer to that effect. Certainly, Lilly was woefully lacking in this arena, especially in the area of targeted biologics. But Lilly is also paying a premium for a pipeline of drugs that could face stiff competition from rivals that are further along in development. Catherine Arnold, of Credit Suisse, noted in an October 9 report: "We question the magnitude of the pipeline's potential, especially when one considers how crowded the oncology space is becoming (particularly for the mechanisms in question) and the increasingly conservative US regulatory market." Ouch.

Eli Lilly/Dicephera: Lilly had smaller fish to fry this past week as well. Late on Oct. 3, it announced a deal with privately-held Deciphera Pharmaceuticals to gain access to the start-up's preclinical B-Raf kinase inhibitor program. Under the terms of the agreement, Lilly and Deciphera will collaborate in four different project areas with Lilly getting exclusive worldwide rights to any products developed as part of this collaboration. In return, Deciphera will receive an undisclosed upfront payment and two year's research funding and may also receive up to $130 million in potential development, regulatory and sales milestones for each of the four project areas. (Deciphera is also entitled to royalties on sales if any products actually make it to market.) "This collaboration is further evidence of Lilly's ongoing commitment to oncology research," said Dr. William W. Chin, M.D., vice president of discovery research and clinical investigation for Lilly. (Funny, we thought it was evidence of desperation based on a missed user fee deadline for prasugrel and negative news associated with Byetta. Oops, sorry--that was ImClone. Undoubtedly Lilly would say Deciphera is about accessing innovation.)

Summit/The Lilly TB Drug Discovery Initiative: We hope you haven't overdosed on Lilly. This week's feel-good tie-up is a co-development agreement between the UK biotech Summit and the Lilly Tb Drug Discovery Initiative, a public-private partnership created by guess who. Under the deal's terms, the Lilly initiative gains an exclusive license to Summit's early stage, novel compounds in the developing world and will shoulder future research and development costs. In exchange, Summit retains all rights to these compounds for the treatment of TB in the developed world, as well as all other potential indications. In addition, the biotech will have access to the data generated by the initiative and can use it in future sub-licensing agreements. As we noted in the Pink Sheet Daily, that's great news for Summit--someone else pays for development of its drugs, but it still has commercial rights in parts of the globe where patients can actually pay for the meds. In all seriousness, scourges such as TB and malaria exact an enormous toll on the inhabitants--especially children--of developing nations. But market incentives are lacking and that's made it tought to get biotechs interested in taking on drugs for these global health targets. As Chris Earl, CEO of Bio Ventures for Global Health (BVGH) told START-UP, "Even if you made the drugs [for global health] as cheap as possible, the patients still don't have any money." Partnerships like the Lilly TB initiative and the Bill and Melinda Gates Foundation (which we profile in the October issue of START-UP)--as well as novel mechanisms like priority review vouchers--are starting to provide those necessary incentives. Hopefully other companies will follow Summit's (and Lilly's) lead and do well by doing good.

Biolex/OctoPlus: In case you thought we were gilding the Lilly, fear not. (We can't afford the precious metal on our salaries here at IN VIVO Blog.) In the non-Lilly universe, Biolex and OctoPlus also made some noise, expanding the scope of their existing partnership concerning the Dutch company's Locteron. OctoPlus and Biolex have been involved in co-development of the Hep C drug, currently in Phase IIa trials, since 2005. With this latest agreement, Biolex now takes full responsibility for development and commercialization of the drug, funding the work out of the $60 million Series D financing round it recently closed. Octoplus will receive an upfront fee of $11 million, potential milestone payments totaling $138 million, royalties on future Locteron sales, and an equity stake in Biolex of up to 3%. (OctoPlus also retains commercial manufacturing rights to Locteron--just in case you were wondering.) The deal could be Biolex's ticket to a positive change of luck: the firm tried and failed in an attempt to go public in 2007, and Locteron could be the late-stage product it needs to validate its lemna-based LEX technology and attract other big pharma partners.

Mediceo/Alfresa: The merger mania that infected Japanese pharmas such as Takeda and Daiichi now looks to be hitting the wholesale sector in that country. This week, Mediceo Paltac Holdings and Alfresa Holdings, the ichi-dai and ni-dai Japanese wholesalers, struck a $2 billion stock deal to better cope with falling prices and tough competition. Hit by government-mandated cuts for medicines, increased use of generics and loss of negotiating power as hospitals and pharmacies form new ties, the distributors hope to gain bargaining power by creating a dominant industry leader. As part of the deal Alfresa will swap one of its shares for 4.15 shares in Mediceo, according to a release.

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